Skip navigation

Mutual Fund News

Fees top $10-billion last year, study says

MER for all funds hit record 2.62%


Fund investors paid more than $10-billion in management fees last year, more than 3½ times the amount paid in 1995, according to a report from Morningstar Research Inc.

In 2002, Canadians doled out $10.3-billion in fees, the report said, up sharply from 1995's $2.8-billion. For this year, that figure is expected to decline slightly to $10.1-billion.

Despite that hefty tally, overall fees are down from their peak of $11.5-billion, which was touched in 2000.

But while total amounts have been declining, the average management expense ratio (MER) -- which covers everything from the salaries paid to manage the fund to legal fees to taxes -- for all Canadian funds soared to a record high of 2.62 per cent as of April 30. In 1995, the beginning of Morningstar's survey period, the average was 2.02 per cent.

Mark Warywoda, Morningstar's director of analysis, said the MER growth stems from four key factors:

The recent rise in the number of segregated funds available. Those funds, he explained, have higher expense ratios than non-segregated funds because of their insurance features. Segregated funds, often described as a mutual fund wrapped in a life insurance policy, are considered insurance products because the money held in the fund must be kept separate from the other assets of the insurance company. The bulk of the principal is guaranteed to the investor.

The "huge growth" in the total number of funds available since 1995 -- from 1,000 then to more than 4,600 today. "Newer funds tend to have to allocate fixed costs over fewer assets," he said.

An increase in the number of specialized or sector funds, which typically cost more to run than traditional funds.

Recent legislation requiring inclusion of goods and services tax in MERs.

Mr. Warywoda also said in his report that average index fund MERs are 1.12 per cent, "significantly lower" than actively managed funds average MERs of 2.51 per cent.

"While the distinctions between segregated funds and mutual funds or between passively and actively managed funds is important, most Canadian fund investors remain interested primarily in conventional mutual funds. In that market, segment management expenses vary considerably among fund sponsors," he said.

Investors with Winnipeg-based Investors Group, the largest fund company with $42.13-billion in assets under management, pay about $1.2-billion in management expenses a year, the report said. That works out to an average MER of 2.97 per cent.

Rounding out the top five fund companies by their assets' average MERs: RBC Funds, 2.18 per cent; TD Mutual Funds, 2.03 per cent; AIM Trimark Investments, 2.57 per cent; Mackenzie Financial, 2.64 per cent.

© 2007 The Globe and Mail. All rights reserved.

Search Fund News

Advanced Search

Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.

Discover a wealth of investment information and and exclusive features.

Free E-Mail Newsletters

  • Morning news headlines
  • Morning business headlines
  • Financial highlights
  • Tech alert
  • Leisure

Sign-up for our free newsletters

Back to top